Re:
Arrangement between Western Goldfields Inc. (“WGI”) and
New Gold Inc. (“New Gold”)

This letter
sets out our agreement with respect to certain matters in
connection with the proposed business combination by way of
arrangement pursuant to a business combination agreement dated as
of March 3, 2009 between WGI and New Gold (the “
Agreement ”) and as amended by letter agreement dated
April 8, 2009. For good and valuable consideration (for which
receipt is hereby acknowledged by both of us), we agree as
follows:

1.
The Parties have determined that the Arrangement will not have the
U.S. federal income tax consequences described in section 2.10 of
the Agreement.

2.
Accordingly, and pursuant to section 7.01 of the Agreement and
section 6.01 (a) of the Plan of Arrangement, the Plan of
Arrangement shall be amended such that the merger of New Gold Subco
and Western shall not occur, and the steps described in paragraphs
3.01(e),(f),(g) and (h) of the Plan of Arrangement (in the form
attached as Appendix “A” to the Proxy Circular) shall
be deleted.

3.
The Plan Arrangement, as amended in accordance with Section 2
above, shall be in the form attached hereto as Schedule
“A”.

4.
Terms that are not otherwise defined herein shall have the meanings
ascribed thereto in the Agreement.

WESTERN
GOLDFIELDS INC.

By:

“Brian
Penny”

Name: Brian
Penny

Title: Chief
Financial Officer

Accepted as of
the date above.

NEW GOLD
INC.

By:

“Susan
Toews”

Name: Susan
Toews

Title:
Corporate Secretary

SCHEDULE
“A”

PLAN OF
ARRANGEMENT

UNDER SECTION 182 OF
THE

BUSINESS CORPORATIONS ACT
(ONTARIO)

ARTICLE 1
DEFINITIONS AND INTERPRETATION

1.01
Definitions

In this Plan of
Arrangement, unless the context otherwise requires, the following
words and terms with the initial letter or letters thereof
capitalized shall have the meanings ascribed to them
below:

(a)
“ Arrangement ” means the arrangement under the
provisions of the OBCA on the terms and subject to the conditions
set forth in this Plan of Arrangement, subject to any amendment or
supplement hereto made in accordance with the Business Combination
Agreement , the provisions hereof or at the direction of the
Court in the Final Order;

(b)
“ Business Combination Agreement ” means the
business combination arrangement agreement dated as of March 3,
2009 between New Gold Inc. and Western Goldfields Inc., as amended,
amended and restated or supplemented prior to the Effective
Date;

(c)
“ Business Day ” means any day other than a
Saturday, a Sunday or a statutory holiday in Toronto, Ontario or
Vancouver, British Columbia;

(d)
“ Canadian Resident ” means a beneficial owner
of Western Common Shares immediately prior to the Effective Time
who is a resident of Canada for purposes of the Tax Act (other than
a Tax Exempt Person), or a partnership any member of which is a
resident of Canada for the purposes of the Tax Act (other than a
Tax Exempt Person);

(g)
“ Depositary ” means Computershare Investor
Services Inc. or any other trust company, bank or financial
institution agreed to in writing between New Gold and Western for
the purpose of, among other things, exchanging certificates
representing Western Common Shares for New Gold Common Shares in
connection with the Arrangement;

(i)
“ Dissenting Shareholder ” means a registered
holder of Western Common Shares who dissents in respect of the
Arrangement in strict compliance with the Dissent Rights and who is
ultimately entitled to be paid fair value for their Western Common
Shares;

(j)
“ Effective Date ” means the date shown on the
certificate of arrangement issued under the OBCA giving
effect to the Arrangement;

(n)
“ Eligible Non-Resident ” means a beneficial
owner of Western Common Shares immediately prior to the Effective
Time who is not, and is not deemed to be, a resident of Canada for
purposes of the Tax Act and whose Western Common Shares are
“taxable Canadian property” and not
“treaty-protected property”, in each case as defined in
the Tax Act;

(o)
“ Final Order ” means the final order of the
Court made in connection with the approval of the Arrangement,
including all amendments thereto made prior to the Effective
Time;

(p)
“ Former Western Shareholders ” means the
holders of Western Common Shares immediately prior to the Effective
Time;

(q)
“ Holdco Alternative ” shall have the meaning
ascribed thereto in the Business Combination Agreement;

(r)
“ In-The-Money Amount ” in respect of a stock
option means the amount, if any, by which the aggregate fair market
value at that time of the securities subject to the option exceeds
the aggregate exercise price under the option;

(s)
“ Interim Order ” means the interim order of the
Court made pursuant to Section 182(5) of the OBCA in connection
with the Arrangement, including any amendment thereto;

(t)
“ New Gold ” means New Gold Inc., a corporation
existing under the Business Corporations Act (British
Columbia);

(u)
“ New Gold Common Shares ” means the common
shares in the capital of New Gold;

(x)
“ Plan of Arrangement ” means this plan of
arrangement, as amended, modified or supplemented from time to time
in accordance herewith, and with the Business Combination Agreement
and any order of the Court;

(y)
“ Qualifying Holdco ” shall have the meaning
ascribed thereto in the Business Combination Agreement;

(bb)
“ Share Consideration ” means the Share Exchange
Ratio plus $0.0001 in cash for each Western Common
Share;

(cc)
“Share Exchange Ratio ” means 1.0 of a New Gold
Common Share for each Western Common Share;

-2-

(dd)
“ Tax Act ” means the Income Tax Act
(Canada) and the regulations thereunder, as amended from time to
time;

(ee)
“ Tax Exempt Person ” means a person who is
exempt from tax under Part I of the Tax Act;

(ff)
“ Western &rdq

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